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Virginia allows banks to provide virtual currency custody services
On April 11, the Virginia governor signed HB 263, which permits banks in the Commonwealth to provide customers with virtual currency custody services “so long as the bank has adequate protocols in place to effectively manage risks and comply with applicable laws.” Before offering virtual currency custody services, banks must conduct a self-assessment process to carefully examine the risks involved in offering such services, which includes: (i) “implement[ing] effective risk management systems and controls to measure, monitor, and control relevant risks associated with custody of digital assets such as virtual currency”; (ii) confirming adequate insurance coverage for such services; and (iii) maintaining a service provider oversight program to address risks to service provider relationships as a result of engaging in virtual currency custody services. Banks may provide virtual currency custody services in either a fiduciary or non-fiduciary capacity. If a bank provides such services in a nonfiduciary capacity, the bank will “act as a bailee, taking possession of the customer’s asset for safekeeping while legal title remains with the customer” (i.e. “the customer retains direct control over the keys associated with their virtual currency”). Should a bank provide services in a fiduciary capacity, it must “require customers to transfer their virtual currencies to the control of the bank by creating new private keys to be held by the bank.” The bank will have “authority to manage virtual currency assets as it would any other type of asset held in such capacity.” HB 263 takes effect July 1.
Virginia creates provisions for sales-based financing providers
On April 11, the Virginia governor signed HB 1027, which requires sales-based financing providers to register with the State Corporation Commission and provide certain disclosures to a recipient at the time of extending a specific offer of sales-based financing. Exempt from the bill’s provisions are financial institutions and any “person, provider, or broker that enters into no more than five sales-based financing transactions with a recipient in a 12-month period” or enters a single sales-based financing transaction greater than $500,000. With respect to the bill’s disclosure requirements, sales-based financing providers must include details related to the total amount financed, finance charges, total repayment amount, and any other potential fees and charges not included in the finance charge. Additionally, an updated disclosure must be provided should the recipient choose to pay off or refinance the sales-based financing prior to full repayment. The bill also provides that any cause of action related to a contract or agreement for sales-based financing shall be brought in the Commonwealth, and that arbitration proceedings must be in the jurisdiction where the recipient’s principle place of business is located. Sales-based financing contracts are also prohibited from containing a confession by judgment or any similar provision. The bill provides the attorney general with enforcement authority, as well as the ability to seek damages and other relief, including reasonable attorneys’ fees and costs, as allowed by law. The Commission will adopt regulations to implement the bill’s provisions. The bill’s provisions apply to sales-based financing contracts or agreements entered into on or after July 1.
States urge CFPB to prohibit mortgage servicers from charging convenience fees
On April 11, a coalition of state attorneys general, led by Illinois Attorney General Kwame Raoul, announced that they are urging the CFPB to prohibit mortgage servicers from charging convenience fees, which the AGs also referred to as “junk fees” or “pay-to-pay” fees. As previously covered by InfoBytes, the CFPB announced an initiative to reduce “exploitative” fees charged by banks and financial companies and requested comments from the public on fees that are associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes that ensure fair pricing. In the letter, the AGs expressed their support for the Bureau’s request for information on the various fees imposed on consumers generally, but called attention to a specific type of fees imposed by mortgage servicers – the “pay-to-pay fees” – which, notwithstanding that consumers can pay using numerous free mechanisms, the AGs find to be “unfair and abusive” to consumers. The AGs called the fees “particularly insidious in the mortgage industry” because, unlike other markets in which such fees are imposed, “homeowners have no choice in their mortgage servicer.” Because of the nature of the secondary mortgage market, homeowners’ expectations of entering into a long-term relationship with their originating institution are misplaced and they cannot know in advance or determine which company will service their loans – even if they choose to refinance. The AGs also warned that the choice to make payments by an alternative method with no fee (such as online or by check instead of over the phone) may be illusory in the face of pending payment posting deadlines and threatened late fees. In such scenarios, the AGs asserted that the convenience fee operates as an alternative late fee “cheaper, but with a shorter grace period, and in contravention to the contractual terms in most mortgages that outline the specific amount and timing” of late fees. The AGs also took umbrage to mortgage servicers charging fees for the very service they are expected to perform, stating that “[t]he most basic function of a mortgage servicer is to accept payments. The concept that a servicer ought to be able to impose an additional charge for performing its core function is fundamentally flawed.”
Ultimately, the AGs suggested that the Bureau prohibit mortgage servicers from imposing convenience fees on consumers, but, alternatively, the AGs encouraged the Bureau to prohibit servicers from charging convenience fees that exceed the actual cost of processing a borrower’s payment. Furthermore, the AGs requested that the Bureau require servicers to fully document their costs supporting the imposition of convenience fees.
The same day, a group of AGs from 16 Republican-led states released a letter, arguing that more federal oversight would be “duplicative or unwarranted,” given that states already regulate many fees for consumer financial products and services. According to the letter, the AGs noted that “state legislatures and regulators have carefully weighed consumer protection interests and the open and transparent operation of markets in a manner intended to deliver the maximum benefit to the interests of their states,” and argued that they “are much better positioned to understand and assess the diverse interests of their states.” In addition, the letter argued that the Bureau has “limited authority to regulate” fees in consumer financial services markets. The AGs mentioned that the Bureau “may seek to use its authority to prohibit unfair, deceptive or abusive acts or practices to regulate fees,” but considered it “unclear” “that fees disclosed in accordance with state or federal law, in some cases authorized by state law, and agreed to by a consumer in writing constitute ‘unfair, deceptive or abusive’ fees, notwithstanding the CFPB’s characterization of some fees as ‘not meaningfully avoidable or negotiable” at the time they are assessed.’” The letter further characterized the Bureau’s approach as “uncooperative,” “top-down,” and “an unfounded expansion of its authority” that may infringe upon state law.
Kentucky enacts student loan servicer licensing provisions
On April 7, the Kentucky governor signed HB 494 to establish the Student Education Loan Servicing, Licensing, and Protection Act of 2022. The act outlines licensing provisions for student loan servicers and implements consumer protections for borrowers. Among other things, the act requires, subject to certain exemptions, persons servicing student loans in the state to obtain a license from the commissioner. Under the act, the commissioner may require that the application and any supporting documentation be submitted to other agencies or authorities as part of a nationwide licensing system, “which may act as an agent for receiving, requesting, and distributing information to and from any source directed by the commissioner.” The commissioner may also conduct examinations and investigations, deny, suspend, or revoke a license, and enter an emergency order to suspend, limit, or restrict a license without notice or hearing if an investigation reveals that a “licensee has engaged, or is about to engage, in unsafe, unsound, or illegal practices that pose and imminent threat or harm to the public interest.” Additionally, the commissioner may impose civil penalties of up to $25,000 per violation for violations of the act’s provisions, and may order restitution, refunds, or expenses as deemed necessary. The act also prohibits student loan servicers from engaging in unfair, deceptive, predatory practices, or omitting material information connected with the servicing of a student education loan. Additional provisions related to licensing renewals and reinstatements, assessment fees, and reporting and net worth requirements are also provided. The act takes effect 90 days after the official adjournment of the session.
Virginia enacts qualified education loan servicer legislation
On April 11, the Virginia governor signed SB 496, which amends provisions related to financial institutions and qualified education loan servicers. The bill, among other things provides that a “qualified education loan servicer” is an individual that meets all of the following criteria: (i) “receives any scheduled periodic payments from a qualified education loan borrower or notification of such payments or applies payments to the qualified education loan borrower's account pursuant to the terms of the qualified education loan or the contract governing the servicing”; (ii) “during a period when no payment is required on a qualified education loan, maintains account records for the qualified education loan and communicates with the qualified education loan borrower regarding the qualified education loan, on behalf of the qualified education loan's holder”; and (iii) “interacts with a qualified education loan borrower, which includes conducting activities to help prevent default on obligations arising from qualified education loans or to facilitate certain activities.” The bill is effective July 1.
Kentucky enacts mortgage loan industry regulation bill
On April 8, the Kentucky governor signed HB 643, which relates to regulating mortgage lenders. Among other things, the bill: (i) permits employees of a licensee to engage in the mortgage lending process from an alternate location if certain conditions are met; (ii) requires supervision and control of employees acting as mortgage loan originators; (iii) establishes requirements for licensees that allow employees to engage in the mortgage lending process from alternate work locations; (iv) prohibits records from being maintained at an alternate work location; and (v) permits mortgage loan companies and mortgage loan brokers to utilize third-party secure storage facilities if certain conditions are met.
Kansas amends mortgage licensing provisions
On April 7, the Kansas governor signed HB 2568, which updates the Kansas Mortgage Business Act by amending certain mortgage licensing provisions. Among other things, the bill: (i) authorizes certain mortgage business to be conducted at remote locations; (ii) establishes procedures and requirements for license and registration renewal or reinstatement; (iii) adjusts surety bond requirements; (iv) provides for evidence of solvency and net worth; and (v) requires notice to the Commissioner when adding or closing any branch office. Additionally, the bill replaces the current requirements for licenses and renewal applications and also sets the expiration date for licenses and registration on December 31 of each year. A license or registration will be renewed without assessment of a late fee by filing a complete renewal application and nonrefundable renewal fee with the Commissioner by December 1 of each year. The bill is effective July 1.
NYDFS addresses “potential confusion” over new consumer credit transaction SOL
On April 7, NYDFS issued guidance to debt collectors addressing potential confusion about how to comply with the notice requirements of 23 N.Y.C.R.R. § 1.3(b) that went into effect April 7. The new amendments are set forth in Section 4 of the Consumer Credit Fairness Act (which was enacted last November and was covered by InfoBytes here), and address the statute of limitations (SOL) applicable to actions arising out of consumer credit transactions. Specifically, Section 214-i provides that “when the applicable limitations period expires, any subsequent payment toward, written or oral affirmation of or other activity on the debt does not revive or extend the limitation period.” The amendments also decreased the SOL period to three years and requires additional notices to be made. While the guidance provides sample disclosure statements that address each of the requirements under § 1.3(b), NYDFS states that “23 N.Y.C.R.R. § 1.3 does not prohibit debt collectors from adding explanatory language to the model disclosure language set forth in § 1.3(c) or using their own language to comply with § 1.3(b).”
NYDFS’ guidance follows letters sent last month by the New York attorney general to several large credit card companies and major debt collectors operating in the state, which reminded entities about the new obligations and disclosures that will be required when filing collection lawsuits against consumers starting May 7. (Covered by InfoBytes here.)
FTC prohibits Louisiana appraisal board from fixing prices
On April 5, the FTC approved a final order settling charges arising from a 2017 FTC administrative complaint alleging that a Louisiana appraisal board unreasonably restrained price competition for real estate appraisal services provided to appraisal management companies in the state. Under the Dodd-Frank Act, appraisal management companies are required to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The FTC alleged that the appraisal board exceeded Dodd-Frank’s mandate by requiring appraisal fees “to equal or exceed the median fees” identified in survey reports commissioned and published by the appraisal board, and then investigated and sanctioned companies that paid fees below the specified levels. Under the terms of the order, the appraisal board is prohibited from adopting a fee schedule for appraisal services or taking any other actions that may raise, fix, maintain, or stabilize prices, compensation levels, rates, or payment terms for real estate appraisal services. Additionally, the appraisal board must rescind Rule 31101 in the Louisiana Administrative Code, which effectively sets minimum fees for real estate appraisals.
California Court of Appeal: Plaintiffs bound to arbitration in online license agreement
On March 29, the California Court of Appeal for the Fourth Appellate District held that plaintiffs are bound to the terms of an arbitration agreement contained in a defendant video game company’s online license agreement, reversing a trial court’s finding that there was no conspicuous notice of an arbitration agreement and that a reasonably prudent user would not have had notice. According to the opinion, the plaintiff minor used “real money” to make in-game purchases of “loot boxes,” which offered players “randomized chances” to obtain desirable or helpful items. The minor and his father (collectively, “plaintiffs”) sued the defendant, alleging the sale of these loot boxes constituted unlawful gambling, and, thus, violated the California Unfair Competition Law. The defendant moved to compel arbitration based on a dispute resolution policy incorporated into various iterations of the online license agreement that users were presented when they signed up for, downloaded, and used the defendant’s service. The trial court denied the defendant’s motion for the reasons stated above, which the defendant appealed. In addition to agreeing to an end-user license agreement containing an arbitration provision when the plaintiff initially registered and downloaded the game, the defendant maintained that the plaintiff agreed to arbitration several times when the license agreement was updated.
Reviewing whether the defendant’s various notices sent to the plaintiff minor before the purchase of the loot boxes were sufficient to compel arbitration, the Court of Appeal concluded that the pop-up presenting an updated license agreement, which was the operative agreement when the plaintiff minor purchased the loot boxes, “provided sufficiently conspicuous notice.” The court also determined that the notice of arbitration itself appeared in a scrollable text box that included a section clearly titled dispute resolution, and that by clicking the “Continue” button the user was agreeing to all the terms of the license agreement. Specifically, the Court of Appeal held that the plaintiff minor could not have continued to use the defendant’s service if he did not click the “Continue” button. “In the context of the transaction at issue, we conclude [defendant’s] pop-up notice provided sufficiently conspicuous notice of the arbitration agreement such that Plaintiffs are bound by it,” the Court of Appeal wrote.